Download our reports from Bloomberg: BOCM - PDF document

Download our reports from Bloomberg: BOC
Download our reports from Bloomberg: BOCM〈enter〉 29 January 2018 Financial Highlights Y/E 31 Dec 2015 2016 2017E 2018E 2019E Revenue (RMB m) 111,652 114,981 127,811 146,038 157,865 YoY growth 2.8 3.0 11.2 14.3 8.1 Net profit (RMB m) 3,736 5,044 7,149 7,077 8,564 YoY growth 110.2 35.0 41.7 -1.0 21.0 EPS (RMB) 0.381 0.514 0.720 0.702 0.849 BVPS (RMB) 3.98 4.43 5.05 5.61 6.32 P/E (x) 21.3 16.8 12.0 11.8 8.7 P/B (x) 2.04 1.95 1.71 1.48 1.16 Source: Company, BOCOM Int’l estimates Projected 2018 ASK growth close to 15%. In 2017, RPK of China Southern Airlines (CSA) rose 11.9% YoY on the back of 9.63% YoY increase of ASK. Cargo RFTK was also robust in 2017, up 12.64% YoY. For 2018, CSA currently projects 14.8% YoY increase in ASK, of which domestic and international ASK will rise 17.1% YoY and 9.73% YoY respectively, ahead of our previous and market expectations. Domestic ASK increase will still focus on key hubs such as Beijing and Chengdu, while Europe (Frankfurt, Rome), South Asia and Southeast Asia will be the key destinations for international ASK growth, according to management. As we have expected, CSA will rely on aircraft upsizing to increase ASK at busy airports such as Beijing to meet rising customer demand. In 2018, CSA will grow its fleet by 90 aircraft, of which 13 will be wide-body aircraft. Details on fare deregulation for new routes still unknown. Management said CSA is still awaiting further details from Civil Aviation Administration of China (CAAC) on the recently-announced new fare deregulation. Management in general is positive toward increased deregulation as airlines will be able to serve diversified customer demand with more flexible pricing. However, management did not provide details on potential benefits as well as the likely fares on popular routes after deregulation. Yet, management added that, due to benign demand-supply dynamics, fares on routes linking busy hubs are likely to go up, especially those hubs with landing slot cap due to on-time performance (OTP) restrictions. Maintain Neutral call. We lift our FY17-19E earnings forecasts taking into account the latest market views on RMB and fuel price for 2018-19. On the last closing price, CSA is trading at 1.48x P/B on our FY18E BVPS, already at CSA’s high-end valuation for the last decade. We raise our TP to HK$10.10 (1.5x P/B) but maintain Neutral. Figure 1: China Southern Airlines – forecast earnings revision –– Earnings (RMB m) –– –––– EPS (RMB) –––– Change Before After Before After (%) FY17E 6,692 7,149 0.674 0.720 6.8 FY18E 6,416 7,077 0.636 0.702 10.3 FY19E 7,157 8,564 0.709 0.849 19.7 Source: BOCOM International Last Closing: HK$ 10.0 Upside: +1% Target Price: HK$ 10.1 Aviation Sector China Southern Airlines (1055 HK) Teleconference takeaways – management sanguine on 2018 In 2017, China Southern Airlines (CSA) reported 11.9% YoY and 12.6% YoY increases in RPK and RFTK respectively. In 2018, CSA projects ASK to increase by 14.8% YoY. While management did not provide details on fares of deregulated routes, CSA is positive on the fare outlook of routes linking key hubs. We revise our FY17-19 earnings forecasts and raise our target price from HK$7.50 to HK$10.10. As the valuation of CSA is already at its historical high, we maintain our Neutral recommendation. Stock data 52w High (HK$) 10.36 52w Low (HK$) 4.32 Market cap (HK$ m) 130,035.3 Issued shares (m) 10,088.2 Avg daily vol (m) 22.5 1-mth change (%) 23.9 YTD change (%) 23.9 50d MA (HK$) 7.814 200d MA (HK$) 6.363 14-day RSI 70.9 Source: Bloomberg 1-year Performance Chart Source: Bloomberg Geoffrey Cheng, CFA geoffrey.cheng@bocomgroup.com Tel: (852) 3766 1809 Download our reports from Bloomberg: BOCM〈enter〉 China Southern Airlines (1055 HK)  Aviation Sector 29 January 2018 2 BOCOM International 10/F., Man Yee Building, 68 Des Voeux Road Central, Hong Kong Main: + 852 3766 1899 Fax: + 852 2107 4662 www.bocomgroup.com Rating System Analyst Stock Ratings: Analyst Industry Views: Buy: The stock's total return is expected to exceed that of the corresponding industry over the next 12 months. Neutral: The stock's total return is expected to be in line with that of the corresponding industry over the next 12 months. Sell: The stock's total return is expected to be below that of the corresponding industry over the next 12 months. Not-Rated: The analyst does not have conviction regarding the outlook of the stock's total return relative to that of the corresponding industry over the next 12 months. Trading Buy: The stock's absolute return is expected to be very attractive in the near term. This rating can be different from the rating with a view over the ne

xt 12 months. Trading Sell: The stoc
xt 12 months. Trading Sell: The stock's absolute return is expected to be very unattractive in the near term. This rating can be different from the rating with a view over the next 12 months. Outperform: The analyst expects the industry coverage universe to be attractive relative to the relevant broad market benchmark over the next 12 months. Market perform: The analyst expects the industry coverage universe to be in line with the relevant broad market benchmark over the next 12 months. Underperform: The analyst expects the industry coverage universe to be unattractive relative to the relevant broad market benchmark over the next 12 months. Broad market benchmark for Hong Kong is the Hang Seng Composite Index, for China A-shares is the MSCI China A Index, for US-listed Chinese companies is S&P US Listed China 50 (USD) Index. Research Team Head of Research @bocomgroup.com Deputy Head of Research @bocomgroup.com Hao HONG, CFA (852) 3766 1802 hao.hong Geoffrey CHENG, CFA (852) 3766 1809 geoffrey.cheng Macro-Strategy Internet Hao HONG, CFA (852) 3766 1802 hao.hong Yuan MA, PhD (86) 10 8800 9788 - 8039 yuan.ma Karen TAN (852) 3766 1825 karen.tan Connie GU, CPA (86) 10 8800 9788 - 8045 connie.gu Grace HUA, CFA (852) 3766 1837 grace.hua Mengqi SUN (86) 10 8800 9788 - 8048 mengqi.sun Xiao WEN, PhD (852) 3766 1834 xiao.wen Zhe ZHOU (86) 10 8800 9788 - 8041 zhe.zhou Ying SHAN (86) 10 8800 9788 - 8044 ying.shan Banks/ Non-Bank Financials Property Li WAN, CFA, FRM (86) 10 8800 9788 - 8051 wanli Alfred LAU, CFA, FRM (852) 3766 1807 alfred.lau Jaclyn Wang (86) 21 6065 3681 jaclyn.wang Philip TSE, CFA, FRM (852) 3766 1815 philip.tse Hannah HAN (852) 3766 1858 hannah.han Carmen WONG (852) 3766 1830 carmen.wong Jennifer ZHANG (852) 3766 1850 yufan.zhang Consumer Renewable Energy Summer WANG, CFA (852) 3766 1808 summer.wang Louis SUN (86) 21 6065 3606 louis.sun Environmental Services Technology Wallace CHENG (852) 3766 1810 wallace.cheng Chris YIM (852) 3766 1803 christopher.yim Gaming & Leisure Transportation & Industrials Alfred LAU, CFA, FRM (852) 3766 1807 alfred.lau Geoffrey CHENG, CFA (852) 3766 1809 geoffrey.cheng Fay ZHOU (852) 3766 1816 fay.zhou Luya YOU (852) 3766 1836 luya.you Healthcare Automobile & Defense Lilian WAN (852) 3766 1849 lilian.wan Angus CHAN (86) 21 6065 3601 angus.chan Grace ZHAO (86) 21 6065 3611 grace.zhao China Southern Airlines (1055 HK)  Aviation Sector Download our reports from Bloomberg: BOCM〈enter〉 29 January 2018 3 Analyst Certification The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations were being received by the authors. The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in this report except for one coverage analyst who is holding shares of Shimao Property Holdings Limited. Disclosure of relevant business relationships BOCOM International Securities Limited, and/or its associated companies, has investment banking relationship with Bank of Communications, Guolian Securities Co. Ltd., ,Bank of Zhengzhou Co. Ltd., Human Health Holdings Limited, COFCO Meat Holdings Limited, Hebei Yichen Industrial Group Corporation Limited, China Aircraft Leasing Group Holdings Limited, Orient Securities Company Limited, Wuxi Construction and Development Investment Co.China Development Bank Financial Leasing Co., Ltd, Phoenix Healthcare Group ,Co. Ltd, Everbright Securities Company Limited, China First Capital Group Limited, Jiayuan International Group Limited, Luzhou Xinglu Water (Group) Co., Ltd., Postal Savings Bank of China Co., Ltd., China Merchants Securities Co., Limited, Shandong International Trust Co., Ltd, Guangdong Kanghua Healthcare Co., Ltd, CSC Financial Co., Ltd, BOCOM International Holdings Company Limited, HPC Holdings Limited, Guotai Junan Securities Co., Ltd, Zhongyuan Bank Co., Ltd and Sichuan Energy Investment Development Co., Ltd within the preceding 12 months. BOCOM International Global Investment Limited currently h

olds more than 1% of the equity securiti
olds more than 1% of the equity securities of Orient Securities Company Limited. BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Everbright Securities Company Limited. BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Guolian Securities Co., Ltd. BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Guotai Junan Securities Co., Ltd. BOCOM International Prosperity Investment Limited currently holds more than 1% of the equity securities of China YuHua Education Corporation Ltd. Disclaimer By accepting this report (which includes any attachment hereto), the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and agrees to be bound by the limitations contained herein. Any failure to comply with these limitations may constitute a violation of law. This report is strictly confidential and is for private circulation only to clients of BOCOM International Securities Ltd. This report is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BOCOM International Securities Ltd. BOCOM International Securities Ltd, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this report or any securities related thereto and may from time to time add to or dispose of, or may be interested in, any such securities. Further, BOCOM International Securities Ltd, its affiliates and its related companies may do and seek to do business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking, advisory, underwriting, financing or other services for or relating to such company(ies) as well as solicit such investment, advisory, financing or other services from any entity mentioned in this report. In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. The information contained in this report is prepared from data and sources believed to be correct and reliable at the time of issue of this report. 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It is intended for circulation amongst BOCOM International Securities Ltd’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof. The views, recommendations, advice and opinions in this report may not necessarily reflect those of BOCOM International Securities Ltd or any of its affiliates, and are subject to change without notice. BOCOM International Securities Ltd has no obligation to update its opinion or the information in this report. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to any law, regulation, rule or other registration or licensing requirement. BOCOM International Securities Ltd is a subsidiary of Bank of Communications Co Ltd.